The eurozone’s manufacturing output fell again in May, however only marginally and at the slowest extent in over a year, revealed the latest S&P Global HCOB Purchasing Managers’ Index (PMI) survey. May marked the third month in a row where the decline in factory output slowed and production came close to stabilizing. In addition, the eurozone saw a softer contraction in total new orders, exports and purchasing activity. Meanwhile, business confidence increased further.
The PMI, a monthly measure of the overall health of eurozone factories, rose to 47.3 in May from 45.7 in April. While this reading is still below the 50.0 threshold, it was the highest reading since March 2023. This indicates the slowest deterioration in the health of the eurozone’s manufacturing sector for over a year.
Contraction slows in Germany and France
Germany and France, the two largest economies in the eurozone, saw a slowdown in contractions. However, France remained the eurozone’s worst-performing manufacturing sector. Meanwhile, Spain and the Netherlands’ manufacturing sectors saw expansions, registering the best improvements in factory operating conditions since 2022. On the other hand, Greece retained the top rank despite growth declining to a four-month low.
“This could be the turning point for the manufacturing sector. The industry is on the verge of halting the production decline that has persisted since April 2023,” stated Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
De la Rubia added: “Although Germany’s HCOB Manufacturing PMI remains the lowest of the four major eurozone economies, it is close behind Italy. Italy, as of lately considered an outperformer, has seen its situation deteriorate.”
New orders and export sales
Companies across the eurozone reported lower new orders midway through the second quarter, a major factor that impacted the manufacturing sector. Despite that decline, the rate of contraction was the weakest in two years. In addition, new export sales also decreased, cooling to its weakest since May 2022.
Backlogs of work continued to decline in May as slow demand led eurozone factories to use outstanding orders to support output. Meanwhile, employment across the eurozone’s manufacturing sector saw a further decline in May amid surplus capacity, extending the current period of factory job losses to a year.
“Optimism is growing, but companies remain cautious. They continue to reduce personnel and hold back on purchasing intermediate goods. This caution may also be reflected in the accelerated decrease in inventories of produced goods,” added de la Rubia.
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